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Home / Local News / The parallel financial universe of the Cayman Islands

The parallel financial universe of the Cayman Islands

The Bureau of Investigative Journalism and the Independent broke a story in April 2012 about Lord Blencathra, a former Tory MP and chief whip, who was being paid by the Cayman Islands government to represent the interests of its financial services industry while also being able to vote on legislation affecting the territory. Lord Blencartha’s advice was the guiding principle for the policy makers in the Cayman Islands vis-à-vis their strategies safe guarding the interests of the Cayman Island’s financial industry against the onslaught of the OECD, the EU and the UK Parliamentarians.

In the same year, an Early Day Motion was proposed by former treasury select committee member John Cryer, a Labour MP for Leyton and Wanstead that read:-

“As a former member of the Treasury select committee, I think it is a disgrace that the Cayman Islands, a tax haven, can enable wealthy corporations and individuals such as Mitt Romney and others in the wealthiest 1% to avoid tax and still be cloaked in secrecy.

“Meanwhile all across the western world, including in my own constituency, hard-working people are seeing their living standards and take-home pay stagnate or reduced. It reminds me of President Kennedy’s comment in his inaugural speech, ‘pay any price, bear any burden’. Except it’s hard-working, modestly paid majority who are bearing that burden.”

In August 2014, FCA UK placed the Cayman Islands on its blacklist along with 90 other countries. The Cayman Islands was later removed from the list.

On Wednesday 17 June, the EU placed the Cayman Islands on its black list as a jurisdiction that allows tax evasion.

Many people strive to evolve into beings that get closer to the reality as time passes, some of us choose to slip into a fantasy realm as its more comforting, and a chosen few simply create a parallel universe where one can create one’s own reality and simply forget what the reality means.

The financial industry including the regulators in the Cayman Islands has a parallel universe of their own standards and beliefs. One where it does not matter what the facts are, they say and believe is the surreal reality.

The Cayman Islands Monetary Authority and the Cayman Islands Financial Services needs to take another look at their strongly worded statements in the local media about their seriousness related to anti-laundering regime etc. etc. The following paragraphs reveal their parallel universe and their perceived, ‘reality’.

The US Senate Permanent Subcommittee on Investigations issued their mammoth 335-page report in 2012 titled, “U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History,” we learned that amongst the “services” offered by HSBC subsidiaries and correspondent banks were sweet deals, to the tune of hundreds of billions of dollars, with financial entities with ties to international terrorism and the grisly drug trade through HSBC Cayman Islands.

With some 7,200 offices in more than 80 countries and 2011 profits topping $22 billion (£13.6bn), Senate investigators found that HSBC’s web of 1,200 correspondent banks provided drug traffickers, other organized crime groups and terrorists with “U.S. dollar services, including services to move funds, exchange currencies, cash monetary instruments, and carry out other financial transactions. Correspondent banking can become a major conduit for illicit money flows unless U.S. laws to prevent money laundering are followed.” They weren’t and as a result the bank’s balance sheets were inflated with illicit proceeds from terrorists and drug gangsters.

According to Senate investigators, HSBC Financial Services (Cayman) was the principle conduit through which drug money laundered through HSBC Mexico (HBMX) flowed. “This branch,” Senate staff averred, “is a shell operation with no physical presence in the Caymans, and is managed by HBMX personnel inMexico City who allow Cayman accounts to be opened by any HBMX branch across Mexico.”

“Total assets in the Cayman accounts peaked at $2.1 billion in 2008. Internal documents show that the Cayman accounts had operated for years with deficient AML [anti-money laundering] and KYC [know your client] controls and information. An estimated 15% of the accounts had no KYC information at all, which meant that HBMX had no idea who was behind them, while other accounts were, in the words of one HBMX compliance officer, misused by ‘organised crime’.”

HSBC’s private banking arm, HSBC Private Bank is the principal private banking business of the HSBC Group. A holding company wholly owned by HSBC Bank Plc, its subsidiaries include HSBC Private Bank (Suisse) SA, HSBC Private Bank (UK) Limited, HSBC Private Bank (CI) Limited, HSBC Private Bank (Luxembourg) SA, HSBC Private Bank (Monaco) SA and HSBC Financial Services (Cayman) Limited. All of these entities featured prominently in money laundering and tax evasion schemes uncovered by the Senate Permanent Subcommittee in their report. Combined client assets have been estimated by regulators to top $352 billion (£217.68). Most of these funds made their way to the mainstream banking system of the UK in the aftermath of the 2008 Banking crisis.

In 2013 ABC News recently revealed that Bain Capital has established 138 different offshore funds in the Cayman Islands.

Before we divulge further into the US$ 80 Billion Bain Capital Debit Funds in the 138 entities in the Cayman Islands, let’s see what Victor Fleischer, a tax professor at the University Of Colorado Law School, recently explained how this debt based finance works:-

“The idea behind some of the Cayman Island Fund strategies was that the income that the fund managers receive for managing the money would be kept offshore in the Cayman Island — and the chief benefit is that you can defer when you recognize that income until a later date and you can reinvest the money from the Cayman islands and none of those reinvested funds get taxed until you bring them back either.”

The Bain debt hedge funds are organized as partnerships in the Delaware USA for the ultra rich that produce taxable business income by investing in fixed-income bonds and other debt instruments. Under US tax law, even tax-exempt U.S. institutions may face a 35% tax if they invest directly in such hedge funds. By investing instead through a Cayman corporation, the taxes are legally blocked, experts say.

Leading Washington lawyer Jack Blum told the ABC News in January 2013, the following about the disgraced ex-US Presidential candidate Mitt Romney’s finances:-

“Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans. All these funds are held by Bain. His personal finances are a poster child of what’s wrong with the American tax system”.

“The ultra-wealthy use offshore banks such as in the Cayman Island’s “shadow banking system” that plays by rules that most people don’t even know exist. It is a shadow banking system that most Americans don’t know anything about. Most Americans don’t have the resources to be able to set up shell companies in half a dozen different countries so that they can “filter” their profits. Most Americans don’t know a thing about complicated tax avoidance plans that tax lawyers use such as the “Double Irish” and the “Dutch Sandwich”.

Organizations like Bain in cohort with firms like Carlyle Group used and devised a scheme to bring down time-tested, employee centric organizations such as Hertz through a financial fraud scheme called “dividend recapitalization”. The plan was rolled as a massive buy-out scheme of businesses between 1990 and 2006.

This term is described aptly by Heather Slavkin Corzo, an independent private equity takeovers monitor, as “borrowing someone else’s credit card to take out a cash advance, and then leaving them to pay it off.”

The major beneficiary of these proceeds remains the hedge-fund industry of the Cayman Islands that is a major player in under-writing such large corporate buy-outs with obvious tax reliefs due to off-shoring.

According to the August 2007 Western district Court of Texas indictment of former US Army Colonel Anthony Bell and Major John Cockerham deposited between US$ 5 Million to US$ 9 Million in cash between 2004 and 2007, in two of the major consumer banks in the Cayman Islands. The proceeds were kickbacks from contractors working for the US Government in Iraq war. The money was transported in cash via aircrafts to the Cayman Islands and deposited in safe deposit boxes of the banks.

According to Reuters 2013 reporting, Father Monsignor Nunzio Scarano, a senior accountant at the Vatican’s Holy See’s Institute for the Works of Religion, which is the Vatican’s highest financial institution, Giovanni Maria Zito, an officer in the Italian Intelligence Service and Giovanni Carenzio, a successful securities broker based in the Cayman Islands were charged with smuggling US$26 million in cash, using a private jet from Switzerland into Italy. The funds were allegedly laundered through the securities firms in the Cayman Islands.

On the 2 June 2015, GRAIN. ORG, A non-profit organization that works to support small farmers and social movements in their struggles for community-controlled and biodiversity-based food systems wrote the conclusion of an investigation that has been killed by the Main Stream Media about land grabbing from poor farmers in the Democratic Republic of Congo by Feronia Inc.

Feronia Inc was incorporated in the Cayman Islands to avoid “double taxation” in Canada and the DRC. Feronia floated stock on the Toronto exchange in 2010 at C$ 4 a share, becoming the first African agribusiness and the first palm oil producer to list on a North American stock exchange. It raised $21.8 million after targeting $15 million.

Its share price fell to all time low of C$0.56 in Nov 2014 after falling from a high of C$9.50 in March 2011. This led to the flight of shareholders in the Cayman Islands based company as well. The flight of major share holders left the field wide open for the real players to step in.

This truly a classic saga of imperial designs exactly copying the script of 1600’s East India Company grabbing the lands and the riches in the Indian Sub Continent from the locals and transferring the loot to the British Empire.

The UK government-backed investment vehicle CDC called upon African Agriculture Fund (AAF), managed by private equity fund Phatisa and invested $14.5 million and $19.5 million, respectively.

As soon as CDC UK took over, a number of DFIs (Direct Foreign Investors), including the French Agency for Development (AFD) and the US government’s Overseas Private Investment Corporation (OPIC) also starting investing through their investments in the Mauritius-based African Agriculture Fund (AAF).

As of November 2013, the CDC owned 27.5 percent of Feronia, the AAF had 32.5 percent, and other investors held the rest. Feronia Inc. is now 80 percent owned by the UK’s CDC Group.

The huge international institutional funding of Feronia Inc.’s by the CDC and DFI’s increased the land holding from 5000 hectares to 120,000 hectares (300,000 plus acres) of DRC’s prime agricultural land from private farmers without their legal consent.

The revenue proceeds from the land are now heavily subsidized in tax rebates and duties by the DRC Government for GMO based palm oil plantations set-up by CDC UK’s Feronia Inc.

As per global financial regulations, DFIs have a mandate to support poverty alleviation in developing countries and must operate according to strict policies that prevent them from investing in companies that grab land, violate labour rights or engage in corrupt practices.

A comprehensive investigative report prepared by RIAO-RDC and Grain, based on company records and testimonies from affected communities, shows how CDC UK’s Feronia Inc., along with its DFI partners, is in flagrant violation of global Human Rights and AML policies.

Over 60 tribal chiefs and other community leaders from across the district of Yahuma in DRC, where 90 percent of Feronia’s Lokutu oil palm plantations are located, delivered a petition to RIAO-RDC and Grain on 8th March 2015 that states:-

“We demand, first and foremost, the start of negotiations to reclaim our rights over the lands that have been illegally taken from us.”

CDC UK’s Feronia Inc. is the largest employer in DRC and pays a whooping average US$ 1 a day wage to its local workers.

Cayman and Canadian hedge fund TriNorth Capital Inc.’s venture capitalist Ravi Sood who started Feronia Inc. in 2008, is still the CEO of the company. He agreed with Thomson Reuters Foundation news service in a 2014 interview that wages are “too low” but stressed it was challenging to get the company into the black.

DRC is one of the world’s poorest nations despite its resource wealth. More than 70 percent of its 68 million population live below the poverty line, the World Bank says. Average life expectancy is age 50.

It is worth noting that Feronia Inc.’s Cayman Islands holding company is managing these billion dollar proceeds under the apt and vigilant regulatory regime which is very serious about its international regulatory obligations.

This DRC case study and case after case of financial scandals involving mega corporate and banks emerging from the Cayman Islands offers many conclusions, lessons and of course stark facts that may seem unpalatable to our Government, Financial Regulators and the Financial Industry but remain facts at the end of the day.

Conclusions that hit at the core of the identity of the Caymanian people and their rights vis-à-vis the financial industry that serves the UK’s interest only, clearly defines the manipulation of facts by the main stream media and the UK.

Since the 1960’s to date, the financial industry that exists in the Cayman Islands is a choice made by the UK for the people of the Cayman Islands. The laws that govern it are the UK laws, the leadership that runs the Cayman Islands financial industry is the UKs, and the proceeds most definitely benefit the UK banking system the most. Which part of this factual statement is not known to the powers that be and their mouth piece media? Just like the $1 a day salary workers of the DRC, the majority of Caymanians are in the same category. Victims of the dark choices made for them by the FCO and the UK and supported by selected few from local population who get some crumbs from the pie. The so-called Cayman financial industry mess that is factually proven and believed to be true is created, managed, enjoyed and protected by the UK and the FCO alone. Caymanians are as much a victim of it as any other nation in the world. Dishing out a few crumbs in the shape of some low and mid-level jobs, feel good financial donations and puffed up false pride with hollow-slogans of, ‘fifth largest’ financial centre does not mitigate the injustice perpetrated in the shape of identity disgrace as a corrupt jurisdiction, tax haven.

The constant bashing of Caymanians by the local main stream media in biased editorials and the local political leaders who are rattling out the script of the financial industry lobbyist constantly confuse and mix the two very different words in the English language, ‘entitled’ and ‘entitlement’.

The FCO and its cronies are reminded that the people of these islands are waking up to the reality that has been kept masked under many shrouds for decades.

The indigenous people of these Islands are ‘entitled’ to their freedom, their right of self-determination to choose an honorable socioeconomic system that brings laurels and social-justice to Caymanians and not the colonial puppet master who now hides behind the title of the British Common Wealth.

The forced colonial ‘entitlement’ of the colonial master and their cronies in the Cayman Islands must end.

Updated: Sources and information related to the above article.

Cayman Finance History

EC MEMO Dec 2013

EU Action Plan 2012

EU Presidency letter 2013

EU Tax Blacklist Memo

EU Tax Directive 2005

EU Tax Paper 2014

HSBC Investigation Report

TI 2009 Report

References media and books

About Deon Ebanks

Mr Deon Ebanks is the Publisher and Executive Editor for The Cayman Reporter. Deon brings over 10 years business experience gained from working in the financial services and banking industry and advising and providing assurance services to clients of a Big Four accounting firm.

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